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منگل, مارچ 12, 2013

Energy problem & IP gas pipeline

The stance taken by the US government vis-à-vis the project is
undeniably very bold and clear. Stance of the government of Pakistan on
the issue, widely projected in Pakistan’s print and electronic media
lately, is equally strong and comprehensible. None less than the stature
of the President of Pakistan, Mr. Asif Ali Zardari has categorically
stated that no power in the world can halt the $7.5 billion project,
dismissing mounting US opposition to the venture that will be formally
inaugurated on March 11, 2013.
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Though the ground-breaking ceremony of the Pakistan-Iran Gas Pipeline
Project is about 18 years late, the national consensus is in favour of
the project. The idea of the ‘Persian pipeline’ has been in circulation
since the early 1950s, but the preliminary agreement was signed between
Pakistan and Iran in 1995. And there onwards a criminal neglect of this
crucial energy project delayed both pipeline import of gas and LNG
import from Iran. Result: the country is faced with a serious energy
deficiency causing economic slowdown and ‘gas riots’ by domestic
consumers, who are users of this cheap source of energy.

At present almost 48 percent of the country’s energy needs are met by
the indigenous natural gas resources. But years of lopsided energy
policies have resulted in creating a huge demand and supply of natural
gas. Pakistan’s present natural gas demand is about 7.27 bcfd, while the
supply is only 4.45 bcfd, thus leaving a huge gap of around 2.8 bcfd.
This gap in demand and supply is likely to further expand to around 8
bcfd by 2022, depending on the rate of GDP growth. As Pakistan has one
of the largest natural gas pipeline distribution systems, there is a
considerable percentage of unaccounted for gas (UFG) because of
pilferage, leakages and non-payment of gas bills by the people in the
remote areas.

According to the project proposal, the pipeline will begin from Iran’s
Assalouyeh Energy Zone in the south and stretch over 1,100 kilometres
through Iran. In Pakistan, the 785-kilometre pipeline will pass through
Balochistan and Sindh, but officials now say the route may be changed if
China agrees to the project. The total cost of the Pakistan section of
the pipeline is $ 1.5 billion of which Iran has offered a loan of $ 500
million.

The natural question is why the project was delayed for 18 years when it
was so crucial for the country. One of the major reasons for this delay
was that the post-1995 governments did not want to annoy the US and
Saudi governments who were against expanding relations with Iran. The
project was revived in General Pervez Musharraf’s era with the
assumption that the pipeline would be extended to India; it was even
named by optimists as ‘the peace pipeline’. But India used it as a ploy
to get a nuclear agreement with the US and backed out from the project.
On the other hand, the US kept pushing Pakistan that the
Turkmenistan-Afghanistan-Pakistan gas pipeline would be a better option.
This project had the backing of some leading American companies too. In
1995, at the Economist Roundtable with the government of Pakistan in
Islamabad, I had maintained that as Afghanistan was not going to settle,
at least for the next 15 years, the Turkmenistan pipeline project would
not be possible. (I had underestimated the timeframe.) My apprehensions
were brushed aside by the then Interior Minister General Babar. The
huge cost of indecision and delay of this project is that now it would
be subjected to the UN and many bilateral economic sanctions against
Iran.

The Zardari government revived the project when it became clear that
shortage of gas was dragging the economy down. The political side of
speeding up this project is that President Asif Zardari wants to take
the credit of standing up to the US-Saudi pressure and exploit this in
favour of his party, which has the image of toeing the US agenda. His
critics say that he is leaving this hot potato for his successor if the
PPP loses the election. The diplomatic reason is that Islamabad
policymakers think as the US needs Pakistan for finding a solution to
the Afghan conundrum and exit of its forces by end 2014, they will not
enforce harsh sanctions on the country. On the other hand, Pakistan has
managed to get a deal from Iran because they are suffering from an acute
fall in revenue. Almost 70 percent of Iran’s $ 358 billion GDP is
dependent on its energy exports. Because of sanctions the major
importers of Iranian oil are gradually cutting down their imports from
Iran. In the last couple of months Iran’s energy exports revenue has
dropped by almost 42 percent. That is the reason Iran has agreed to
finance the Pakistani sector of the pipeline as they know no foreign or
Pakistani domestic bank will touch this project with a ten foot barge
pole fearing international financial sanctions. To reassure Pakistan,
Iran’s supreme leader Ayatollah Ali Khamenei recently told the visiting
Pakistani delegation that the much-delayed $ 7.5 billion gas pipeline
project must go ahead despite US opposition. “The Iran-Pakistan gas
pipeline is an important example of Tehran-Islamabad cooperation, and
despite hostilities towards the expansion of ties, we must overcome this
opposition decisively,” Khamenei told Zardari, foreign news agencies
reported. The pipeline also symbolises that Iran is not completely
isolated.

Zardari is now trying to impress upon the US administration that gas is
needed to overcome its energy crisis, hence they should appreciate
Pakistan’s position. The new UN and bilateral sanctions against Iran
broadly include: measures to impose an assets-freeze and dealings, and
prohibition on 98 new entities of proliferation concern. They also
prohibit the export to Iran of: different types of goods used in
shipbuilding, mineral exploration, mining, metal production, and
telecommunications industries; vessels designed to transport or store
crude oil or its products; hard currency totalling $ 40,000 or more in
value; and new goods of proliferation concern. The expanded measures
also prohibit the import of natural gas, oil, and petroleum or
petrochemical products from Iran; the provision of marketing and other
financial or related services in respect of certain prohibited goods;
the provision of flagging or classification services to Iranian oil
tankers or cargo vessels; and the provision of insurance and reinsurance
to Iran or any entity in Iran. It is the shipping insurance clause that
is pushing traditional Iranian oil importers to back off.

A billion dollar question for Pakistan policy makers is how violation of
the sanction, “the expanded measures also prohibit the import of
natural gas, oil, and petroleum or petrochemical products from Iran”
would be invoked against Pakistan. So far no country has been penalised
for importing oil from Iran. China and India, who opposed the expansion
of sanctions on Iran, continue to import Iranian oil under the
exemptions that they have taken from the UN and US. However, reports are
that all oil importers from Iran are gradually tapering off their
imports from Iran, but the process is expected to stretch over 15-18
months. Pakistan’s agreement with Iran is to lay down the gas pipeline
within 15 months, which incidentally also coincides with the timeframe
of US forces’ withdrawal from Afghanistan. Pakistan is banking on the
1980s experience when because of its strategic importance to continue
insurgency in Afghanistan the US administration turned a blind eye
towards Pakistan’s nuclear programme. Pakistan is also hoping that the
recent Iran and big five negotiations in Almaty will bear some fruit and
sanctions may be eased if some progress is made in further talks.

The good news is that in spite of their political differences and the
coming elections where political parties are usually miserly in
supporting the ruling party’s initiatives, the major political parties
are supporting this project. Pakistan Tehreek-e-Insaf’s star economist
Asad Omar says, “Pakistan-Iran Gas pipeline is the best energy option
for Pakistan.” He thinks that Pakistan should go ahead with the project
in spite of opposition of the US administration as the gas import is
critical for the economic growth of the country. The Pakistan Muslim
League-Nawaz is also supporting the project, Zubair Omar, who is a
member of Nawaz Sharif’s manifesto committee, told me on the phone. Who
ever imagined that Zardari would stand up against US dictates; politics
is indeed full of surprises!________________________________________________